India unlikely to be able to afford Australian coal

A report from a US based analyst predicts that Australian coal industry hopes of strong demand for coal from energy hungry India will be dashed as the sub-continent won't be able to afford imported coal.

Transcript

EMMA ALBERICI, PRESENTER: Hopes of strong growth in exports of Australian coal to the fast-growing economy of India may be dashed as cheaper alternative sources of energy become more attractive. A new financial analysis by a US-based firm predicts the Subcontinent won't be able to afford imported coal, turning instead to either its own reserves or renewables such as solar and wind. As Kerry Brewster reports, the study has been met with heavy criticism from Australia's coal industry and contradicts growth forecasts by the International Energy Agency.

KERRY BREWSTER, REPORTER: As China's demand for coal slows, exporters are looking to energy-hungry India, seen as a vital future market for Australia's massive reserves.

TIM BUCKLEY, INSTITUTE OF ENERGY, ECONOMICS AND FINANCIAL ANALYSIS: The Indian market's critical to the outlook for Australian thermal coal exports.

KERRY BREWSTER: The former managing director of Citigroup equities research Tim Buckley predicts Australian coal will be priced out of the Indian market.

TIM BUCKLEY: The critical issue is the price of renewables is coming down so fast that it is now at parity with imported coal when you're looking at the delivered wholesale cost of electricity in India. Solar has come down 65 per cent in the last three years. We would forecast that it will continue to come down 10 per cent or so per annum for the next three to five years. And so over the next three to five years, it will actually dramatic undercut the market for imported coal-fired generation.

KERRY BREWSTER: Tim Buckley's findings are published by the Institute for Energy, Economics and Financial Analysis, a US-based group funded in part by the pro-renewables Rockefeller Family Fund.

ALAN OXLEY, ITS GLOBAL: Well the issue I think is hard and fast and it's to do with demand. Now, the group that we're dealing with here, let's not forget what we've actually got in Australia: a long-term campaign designed by Greenpeace, financed by Greenpeace to bring the coal industry to a halt. And this argument that there's a problem with coal has been manufactured to try and support that campaign.

KERRY BREWSTER: But there are persistent doubts about the viability of Australian coal projects in Queensland's Galilee Basin, projects that would potentially treble Australian exports.

In 2011, when thermal coal was more than US$130 a tonne, Gina Rinehart and Linc Energy sold out of the Basin. The buyers, two Indian companies, Adani and GVK, spent billions of dollars for the coal deposits and a port and billions more will be required to build the rail lines and expand the port at Abbot Point, where controversial dredging in the Great Barrier Reef Marine Park has been approved.

With the cost of coal now at $75 a tonne, Tim Buckley says the dredging is likely to be in vain.

TIM BUCKLEY: Three years later, the coal price has dropped almost 50 per cent and we would argue those projects are totally stranded and they aren't going to proceed.

KERRY BREWSTER: Both GVK and Adani declined to be interviewed by Lateline, but Alan Oxley says India's demand for coal will continue to grow and the International Energy Agency backs his assessment.

ALAN OXLEY: India looks very strong. In fact the International Energy Agency's forecasting that demand in China may tail off, but demand in India will continue to be very strong, that India will not be able to meet its requirements from its domestic sources and it will need imports.

KERRY BREWSTER: The planned expansion of the Abbot Point Port near Rockhampton remains under stress. BHP, Lend Lease and Anglo American have pulled out.

Kerry Brewster, Lateline.

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